DUBAI, United Arab Emirates - The Central Bank of Iraq (CBI) on Sunday denied claims that it had printed money to combat the current financial crisis, clarifying that it instead used treasury bill discounts as a liquidity tool, a day after Foreign Minister Fuad Hussein said Iraq boosted its financial capacity by around 25 trillion dinars.

In a statement, the bank said treasury bill discounts provide temporary liquidity against existing government debt instruments and are repaid upon maturity, adding that “describing treasury bill discount operations as printing money is inaccurate.” 

Hussein said Saturday that Baghdad had increased its “financial capacity” from 100 trillion to 125 trillion dinars with cash that “we printed,” to cope with a sharp decline in revenues caused by the Iran war and its impact on oil exports.
 
The CBI described the treasury bill discount mechanism as an “internationally recognized financial tool used by major central banks.” In contrast, the bank explained that printing money involves issuing new currency without a corresponding asset and injecting it directly into the economy, which can lead to inflation and a decline in the value of the currency. 

Treasury bills refer to a practice whereby the central bank allows lenders to buy bills from the government at a discount. At maturity, the loan is paid out at full face value, allowing the lenders to turn a profit due to the difference between the face value and the discount.

The bank added that practices such as printing money with no asset backing are prohibited under Iraq's Central Bank Law No. 56 of 2004.

Hussein said in an interview with Al Sharqiya that the measure was intended to address immediate financial pressures, noting that the CBI had not announced it yet. He warned that “we cannot solve our problems through printing because it would lead to inflation.”

The foreign minister cautioned that Iraq could face a financial “catastrophe” if the US-Iran conflict continues until the end of the year.

Iraq relies on oil revenues for around 90 percent of its annual budget. The majority of the country’s oil exports have been halted however, as a result of the US-Iran war and the closure of the Strait of Hormuz.

The bank said its primary role is to “manage monetary policy, maintain price and monetary stability, and safeguard the financial system, not serve as a permanent source of financing for public spending.”

The Central Bank reaffirmed its commitment to “supporting the Iraqi dinar and maintaining monetary and economic stability,” calling for accurate reporting on issues related to the national currency and its management. 

It said routine currency management procedures are fully aligned with its goal of preserving financial and economic stability.